Youth Unemployment Is Down, but Are Young People Actually Working?

Last summer, President Donald Trump was jumping with joy at news that the unemployment rate for workers between the ages of 16 and 24 had reached a worth-tweeting-about 50-year low.

At the time of the president's Twitter post, youth unemployment had dropped to 9.2 percent. It was later revised to 8.6 percent, then dipped to 8.1 percent in November—a rate unseen since February 1969. It currently stands at 8.9 percent.

These numbers are a helpful indicator of America's improving labor-market conditions, signaling that younger Americans looking for a job are having an easier time finding one. The United States has seen an overall decline in the youth unemployment rate from its Great Recession height of 19.2 percent in December 2010.

But this happy figure doesn't tell us everything we need to know. The unemployment rate is a narrow measure that counts only those who are actively looking for work. One way to get a broader view of the health of the labor market is to look at the labor force participation rate of younger Americans.

That number tells an interesting, and at times puzzling, story. After a surge from the '60s to the end of the '70s, the share of young adults who are in the labor force—the percentage, that is, who are either working or looking for work—has been declining. Labor force participation for people aged 16–24 fell from 69.1 percent in 1979 to 54.1 percent in 2014. It has since gone back up a little to 55 percent.

The numbers are even lower if you only look at teens: According to the Federal Reserve Bank of St. Louis, labor-force participation for people under the age of 20 peaked at 59.3 percent in 1978 and then started dropping precipitously around 2001 to reach a low of 32.5 percent in 2014. It stands at 35 percent today.

There are many reasons behind this trend. The first is that young people are staying in school longer. According to a February 2015 article at Vox, "More than 16 million people in the US—about 8 percent of the population—now have a master's, a 43 percent increase since 2002." This also means more teenagers spend their summers beefing up their college applications by doing internships, mission trips, math camps, and other classes, rather than working.

Another factor exacerbating this trend is the increase in minimum wages at the state and local level. A long trail of research shows that these policies reduce employers' incentive to hire relatively low-skilled workers—including, of course, inexperienced teenagers. One consequence is that work is being done by a smaller number of more highly skilled employees—and by robots, since a high minimum wage pushes companies to shift toward automation.

Importantly, research also shows that minimum-wage diktats hinder low-skilled workers' employment opportunities going forward by making it hard for them to get their foot in the door of a job in the first place. This is especially true for teens from minority groups. As my Mercatus Center colleague Michael Farren noted in a 2016 article at Inside Sources, a wage floor "sacrifices the future to try to save the present."

We should care that more teens aren't working (or even trying to). "Normalizing the idea of work for teenagers and young adults is important," Farren says, "because it strengthens their future attachment to the labor force. These early jobs build the habits and human capital that lead to long-term payoffs in better jobs and higher paychecks." By contrast, normalizing the idea of not working hinders attachment to the labor force as an adult.

Politicians who want to "do something" about youth unemployment often assume the answer is to subsidize teens' work. Back in 2012, President Barack Obama asked for "$1.5 billion for high-impact summer jobs and year-round employment for low-income youth." Congress declined to provide the funding, and rightly so: Throwing money at the situation is not only unsustainable; it also leaves underlying problems with the labor market unaddressed. If lawmakers really want to make a difference, rejecting destructive minimum wage hikes should be their top priority.